From True Talk Finance-Mogollon Rim News 8/2019 Edition.
By Rudy Eidenbock
Financial Advisor, RJFS
It seems like the business world is obsessed with
our credit scores. At least to me, every time I turn
around there is someone wanting to run a credit
check on me. It’s not just lenders but landlords,
cable companies, prospective employers, government
agencies, cell phone plans etc. all seem to
want to know if we are a good “credit risk”. So
much weight is put upon whether we are credit
worthy that I feel it is time to clear the air over what
credit scores are and how they work.
To start, a credit score is a three-digit number used
by lenders to evaluate your ability to repay debt on
time. It is different from a credit report which is
a list of your credit accounts and activity used to
calculate your credit score. And, believe it or not,
information such as your age, income, and employment
status don’t count toward your score. Lenders,
however may consider personal information such
as salary and employment history when deciding
whether to approve you for a loan, but these aren’t
factored into your credit score. And just like any
score, (except for maybe golf), higher is better.
You may actually have multiple credit scores because
there are several companies that provide them,
each with varying calculations and ranges. FICO
scores tend to be the most common and their base
scores range from 300 to 850. A score around 750
or higher means you are more likely to get approved
for new credit with better (lower) interest rates or
It’s also important to stress that few things worry
lenders more than unreliable repayments. That’s
why your payment history, whether you have paid
on time or are prone to making late payments, is the
biggest component of you credit score. According
to FICO, one of the most well-known providers of
credit scores, a timely payment history makes up
35% of your credit score. The second largest part of
your credit score, about 30%, is how much you owe.
Using too much of your available credit limit can
make lenders nervous that you’re in over your head.
Keeping credit usage low and consistent, below
30% of your credit limit if possible and paying off
credit cards as soon as possible after big purchases
can help reduce negative impacts on your score.
The length of your credit history is the third largest
component of your credit score, about 15%.
This includes the age of your various accounts and
how long it’s been since you used some accounts.
However, you still can have a high score even if
you’re relatively new to using credit, assuming you
use credit regularly and make payments on time.
There is also such a thing as too new. Opening too
many accounts in a short amount of time can raise
a red fl ag, or about 10% of your score. However,
shopping around for the best rate on a single loan
generally doesn’t cause concern. In such a case, all
the activity in a short time is ultimately considered
one event once you take out the loan and only one
new account is added to your credit report.
For the final 10% of your score, lenders like to see
that you can responsibly manage a mix of different
types of credit such as revolving, (credit cards),
retail accounts and installment loans, (mortgages,
car loans etc.). You don’t need one of each, but having
accounts in several categories helps boost your
You can request your credit score from credit bureaus
such as Experian, TransUnion or Equifax, but
you will likely be charged for it. You can also check
it for free through services such as Credit Karma
and Credit Sesame. Also, many bank and credit
card companies have started offering free credit
scores as a perk. And checking your own score
doesn’t lower it-this is a common myth.
The following are the most common credit scores
and what they will mean to you:
Credit Score Rating %of Americans
Impact on Financial Life
800-850 Exceptional 19.9%
Applicants with Scores in this range are at the top
of the list for the best rates from lenders.
740-799 Very Good 18.2%
Applicants with scores here are likely to receive better
than average rates from lenders.
670-739 Good 21.5%
Only 8% of applicants in this range are likely to
become seriously delinquent in the future.
580-669 Fair 20.2%
Applicants with scores in this range are considered
to be subprime borrowers.
300-579 Poor 17%
Credit applicants may be required to pay a fee or
deposit, and applicants with this rating may not be
approved for credit at all.
Data sources: Experian and Hartford Funds, as of
Many thanks to my wife Silvia for her help in
writing this article. With almost thirty years of
experience in running one of the largest banks in the
state, she was an excellent resource. So, if you have
any questions regarding this article or if I can be of
assistance with your fi nancial/investment needs feel
free to call me at
Vice President, PWA
Financial Advisor, RJFS
4111 E. Valley Auto Dr. #104
Mesa, Arizona 85206
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sources considered to be reliable, but we do not
guarantee that it is accurate or complete, it is not a
statement of all available data necessary for making
an investment decision, and it does not constitute a
recommendation. Any opinions are those of Rudy
Eidenbock and not necessarily those of Raymond
James. Every investor’s situation is unique and you
should consider your investment goals, risk tolerance
and time horizon before making any investment